KLAC

KLA is the structurally advantaged leader in semiconductor process control (inspection and metrology), and the FY2025 numbers show that franchise firing on all cylinders: revenue $12.2B (+23.9%), net income $4.06B (+47.1%), and diluted EPS $30.37 (+49.8%). This is not low-quality growth — the 10-K reports gross margin of 60.9% (up from 60.0% and 59.8% the prior two years) and the data implies a 33.4% net margin, with ~22% of revenue now coming from recurring, subscription-like services that grow every quarter as KLA's installed base expands. Cash generation is exceptional and capital-light: $4.08B operating cash flow against just $335M of capex leaves roughly $3.7B of free cash flow, which funded $2.15B of buybacks and $905M of dividends (the 16th straight annual dividend increase, now $1.90/quarter). An 86.6% ROE is flattered by leverage and shrinking share count, but it sits on top of genuinely elite unit economics.

The valuation is the crux of the call. At $259.56 the stock trades at 8.5x stated EPS and 2.8x sales — multiples you would expect from a no-growth, low-margin cyclical, not a 60%-gross-margin compounder growing earnings ~50%. Even a partial re-rating toward a still-conservative ~12x the $30.37 EPS implies a price around $365. Today's +8.73% move suggests sentiment may be starting to catch up, but the gap between the quality of the business and the price embedded in the numbers is wide enough to support a buy rather than a hold.